Facebook stock lockup lifts Wednesday

By Brandon Bailey bbailey@mercurynews.com

Posted:
11/13/2012 02:55:49 PM PST

Updated:
11/13/2012 03:05:24 PM PST

MENLO PARK -- Facebook's stock could face more turbulence Wednesday as former employees and early investors become eligible to sell as many as 800 million shares that have been kept off the market since the social network's initial public offering in May.

That's the biggest block of Facebook stock to be freed from so-called lockup restrictions since the IPO -- and it will nearly double the number of Facebook shares available on the market.

While there's no telling how many shares might be sold immediately, analysts have warned that an influx of shares could cause the price to fall further than it did when smaller lockups expired in recent months.

After plunging to less than half its initial offering price of $38 over the summer, Facebook's stock showed some improvement last month when the company reported early growth in its new mobile advertising business. But the share price fell again in recent days, as investors braced for Wednesday's lockup expiration.

Facebook shares ended Tuesday at $19.86, down more than 1 percent for the day.

Most of the shares that become eligible for sale Wednesday are held by early investors and insiders, including employees who have since left the company. While their names aren't public, Facebook's biggest stockholder isn't on the list: CEO Mark Zuckerberg owns stock and options amounting to 500 million shares. He sold about 30 million shares in the IPO but has since announced that he won't sell any more stock before September 2013.

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Other top executives have sold shares recently: Chief Operating Officer Sheryl Sandberg cashed in about $11 million worth this month, after an earlier lockup expired. She's still holding about 19 million shares, worth more than $377 million at Tuesday's closing price.

Like many companies, Facebook set restrictions that required early employees and investors to hold their shares for a period of time so they wouldn't flood the market immediately after the IPO. But some critics, including Wedbush Securities analyst Michael Pachter, have argued the company should have imposed the lockups for a longer period.

All told, the lockup that expires Wednesday would allow the sale of up to 804 million shares. That's nearly twice the 421 million shares sold in the initial offering.

Earlier lockups expired in August and October, raising the total number of shares available on the market to 921 million before Wednesday.

With that number set to nearly double, some analysts predicted the stock would take a beating Wednesday. But others said it may be a short-term impact.

"In our view, the stock has seen its lows" and should be able to withstand the lifting of the lockup, analysts at Wells Fargo said in a recent report.

The pending lockup expirations are "a near-term concern," added Sterne Agee's Arvind Bhatia in a research note, but he said the issue is widely known and may not have a lasting effect.

Contact Brandon Bailey at 408-920-5022; follow him at Twitter.com/BrandonBailey.